Why 'If You Like Your Plan' Can't Be Fixed

NYT columnist Ross Douthat says there's no good way to let people
keep their health plans within the context of Obamacare (and he's
right).

Instead, he
suggests an approach the President might take to placate
people who are losing lower-cost coverage that they liked:

Obamacare’s regulations could be rewritten to allow
insurers to sell less comprehensive plans on the exchanges. This
wouldn’t require doing away
with every new regulation, or
rolling back the pre-existing condition guarantee, which
is what
liberals argue the Upton bill currently being
considered in the House would do. But it could
involve heeding
the recent hint from the University of
Chicago’s Harold Pollack, a card-carrying Obamacare advocate,
that perhaps in the wake of the last month’s developments the
government should ”revisit just how minimal the most minimal
insurance packages should be,” which in turn could open the door
to allowing many more people to buy the kind of high-deductible
catastrophic plans that the law currently allows insurers to only
sell to twentysomethings.

I don't think this can work, either. Broadly, there are three
reasons people who buy individual market insurance may be
facing premium increases due to Obamacare. The Douthat/Pollack
approaches don't go very far in addressing them:

Plans are getting more expensive because they close
coverage gaps: This is the "junk insurance" issue
liberals like to talk about. Old plans may have had annual
benefit limits, or excluded key items like prescription drugs
or maternity coverage.

Plans are getting more expensive because they have
lower patient responsibility: Old plans may not have
covered 100% of the cost of preventive care and may have had
higher deductibles and out-of-pocket maximums than are allowed
under the ACA.

Plans are getting more expensive because they are
community rated: Old plans had "experience rating":
People who were young and healthy and male and otherwise
expected to consume little health care paid low premiums;
people who were sick and expensive to cover paid high premiums.
Now, "community rating" means everyone will pay the same price,
except that a limited degree of age-based variation will be
allowed.

Douthat's idea would address point (2) and Pollock's idea (which
is different) would go to point (1), but point (3) is the big
elephant in the room here that nobody can fix because it's a key
policy aim of the ACA.

Douthat wants to allow everybody to buy the catastrophic plans
that the ACA currently contemplates just for 21- to 30-year olds.
For people over 30, the minimum plan you can buy from an ACA
exchange and comply with the individual mandate is a "bronze
plan," which is supposed to be designed with an actuarial value
of 60%, meaning on average it will pay 60% of a participant's
medical bills.

The ACA does not set a minimum actuarial value for
catastrophic plans, but the formula the ACA uses for risk
adjustments assumes it will be 57%. And this is the problem
with Douthat's idea: a "bronze plan" is only very
slightly more generous than a "catastrophic plan." That's
because bronze plans are already high-deductible plans. Anthem
Blue Cross offers a Bronze PPO in California with a deductible of
$5,000 for a single adult. In New York, Aetna's Bronze EPO has a
$3,000 deductible.

We should expect that catastrophic plans will be about 5%
cheaper than bronze plans. Opening these plans up to the broader
market would help a little with sticker shock, but not very
much. The insurance consultancy Milliman
warns that ACA rules "may make it hard to differentiate"
between catastrophic and bronze plans, since the catastrophic
plans and bronze plans must both limit out-of-pocket expenses to
$6,350 for an individual subscriber.

Pollock's suggestion is to
tweak the definition of "essential health benefits" under the
Affordable Care Act. In other words, he'd hold down premiums by
letting insurers exclude more items from coverage. But it's not
clear what these exclusions could be, and Pollack doesn't make
specific suggestions. The additions that add lots of cost (mental
health coverage, prescription drugs, substance abuse treatment)
tend to be pretty important components of health care.

We can tinker a little with the comprehensiveness of coverage,
both in terms of what services of covered and what fraction of
the bills the insurer will pay. But there is no "fix" to the fact that the
ACA creates a
shadow fiscal transfer by charging higher health insurance
premiums to healthy people in order to subsidize coverage for the
sick.

This was a key design feature
of the law. It is not a bug. And it will lead to premium
increases for a few million people. The president can say he's
sorry all he wants, but rate shock is one of the key financing
mechanisms for the ACA. Without coming up with a new way to
finance the law, it can't be fixed.